Sharing last 30 years? Profits up, wages down!

Matt Cowgill’s research is good. Unionists are armed with key facts and arguments. Please download and read his Report “Shrinking Slice of the Pie.” Here is ACTU Secretary Dave Oliver.

A shrinking slice of pie: new research shows wages share of national income falling behind profits

“New research by the ACTU reveals that wages have failed to keep up with productivity growth over the past decade, busting the myth of a wages breakout and confirming that profits are increasing at the expense of workers’ incomes.

The research, by the ACTU’s Economic Policy Unit, finds that workers’ share of national income has been falling since 2000.

This puts upward pressure on inequality, with national income being held in fewer and fewer hands.

ACTU Secretary Dave Oliver said the shrinking share of national income going to workers should be a wake up call for public policymakers.

“Claims by the business lobby about a wages breakout have been repeated so often, they have become the accepted wisdom in politics and the media,” Mr Oliver said.

“But the truth is very different. The reality is that productivity is rising faster than wages, which means that business is capturing a larger and larger share of productivity gains. Just as in the 1970s it was a problem when wages grew faster than productivity for an extended period it’s a problem now when wages are falling behind.

“But this is never enough for the business lobby, who want to reduce workplace rights even further to allow them to grab an even larger slice of the pie. Rather than share the benefits of higher productivity equally, business are taking an ever higher share for themselves as profits. This is leading to a more unequal economy and society.

“Productivity and real wages grew fastest in the 1990s when Labor introduced enterprise bargaining. This isn’t a coincidence as there is a strong connection between giving workers fair rights at work and good outcomes on productivity and real wages.”

The paper – titled A Shrinking Slice of the Pie, which is part of research being conducted by the ACTU in preparation for this year’s minimum wages case – finds that the “decoupling” of productivity and wages since 2000 is the exact opposite of the supposed “wages overhang” of the 1970s. This time, workers have been increasing productivity but have not been rewarded for it by an equal increase in wages.

Wages’ share of national income is now the lowest it has been for more than half a century. Since 2000, productivity has risen by an average of 1.3% a year, but real hourly incomes have risen by only 0.6%. This wages underhang is one of the most pronounced in the OECD, and has taken place across all industry sectors.

“Unions make no apologies that whenever they bargain on behalf of workers, they will seek to ensure that workers are fairly rewarded for the contribution they make,” said Mr Oliver. “This is especially so when it comes the national minimum wages case that begins later this month. We are concerned at the emergence of a working poor in Australia and through the minimum wages case will be seeking to make sure that the gap between low-paid workers and the rest of the workforce does not widen.”

“This paper shows that Australia has experienced the
opposite of a ‘wages breakout’ since 2000. Over this period Australian real wages have not kept pace with
productivity growth. This means that labour’s share of total income has fallen and capital’s share has risen.
We would now need a period in which real wages rose faster than productivity growth merely to restore the labour income share of the 1990s.”

“Average real wages have grown at a solid pace in Australia despite the fact that hourly labour compensation not kept pace with productivity growth.”

Of course, a declining labour share “does not necessarily imply declining living standards for workers”
(OECD 2012a, p. 110). Average real wages have grown at a solid pace in Australia despite the fact that
hourly labour compensation not kept pace with productivity growth. However, decoupling should be a
matter of serious concern to policymakers. It is plausible to imagine that productivity gains are most likely
to be achieved when workers feel they stand to gain a fair share of the dividends of growth; decoupling
erodes this sense of common purpose. By redistributing income away from labour and towards capital,
decoupling can also contribute to household income inequality, as capital ownership is highly concentrated among well-off households (ABS 2011a). The OECD (2012a, p. 110) even suggests that “the unequal distribution of both labour and capital income growth that went hand-in-hand with the declining of the
labour share suggests that these trends might endanger social cohesion.”

“d. 2000-present: Decoupling in Australia
Wages decoupled from productivity in the 2000s. Between 2000 and 2012, productivity rose by an average 1.3% per year, while real hourly labour income rose by only 0.6% per year on average. This meant that labour’s share of national income fell over the decade, and fell quite sharply. In 2000, the labour share was
65.6% – this had fallen to 59.7% by 2012. The labour share recorded in 2011 was the lowest for at least fifty
years.”

“The fall in the labour share has been more severe in Australia than in most other advanced economies….The fall in Australia’s labour share in the 2000s was larger than the fall in any other OECD-15 country.”

“It is well known that the top income earners’ share of total income has risen in many advanced economies
(Atkinson, Piketty & Saez 2011; OECD 2008). Australia is no exception to this trend, with the income share
of the top 1% having risen from around 5% in the early 1980s to around 9% in the late 2000s (Atkinson &
Leigh 2006, updated data). This raises the possibility that the labour share of the bottom 99% may have fallen further than the overall labour share.”

“It’s clear that the mining boom has contributed to the fall in the labour share in the 2000s, but that it
accounts for a small part of it. Decoupling in Australia is a much broader story than the mining boom. The
labour share has fallen sharply in a number of industries that have little to do with the commodity boom,
including the Retail Trade industry (down 11.4 percentage points between 2000 and 2012), the
Accommodation and Food Services industry (-16.8 points), and the Transport, Postal and Warehousing
industry (-10.2 points).”

“A shift in national income from labour to capital mechanically increases inequality, as capital income is much more heavily concentrated among high-income households than labour income
(ABS 2011a). To offset the effects of this upward redistribution, governments should consider making the tax system more progressive.”

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My Comment: Union members have to struggle as a class to get a bigger share of the pie!